GAO-06-301R Managerial Cost Accounting Practices 

United States Government Accountability Office

Washington, DC 20548 

December 19, 2005 

The Honorable Todd R. Platts 

Chairman, Subcommittee on Government Management, 

 Finance, and Accountability 

Committee on Government Reform 

House of Representatives 

Subject: Managerial Cost Accounting Practices: Departments of Education, 

Transportation, and the Treasury 

Dear Mr. Chairman: 

Authoritative bodies have promulgated laws, accounting standards, information 

system requirements, and related guidance to emphasize the need for cost 

information and cost management in the federal government. For example, the Chief 

Financial Officers (CFO) Act of 1990,1

 contains several provisions related to 

managerial cost accounting, one of which states that an agency’s CFO should develop 

and maintain an integrated accounting and financial management system that 

provides for the development and reporting of cost information. Statement of 

Federal Accounting Standards No. 4, Managerial Cost Accounting Concepts and 

Standards for the Federal Government, and the Joint Financial Management 

Improvement Program’s (JFMIP) Framework for Federal Financial Management 

Systems2

 established accounting standards and system requirements for managerial 

cost accounting (MCA) information at federal agencies. The Federal Financial 

Management Improvement Act of 19963

 built on this foundation and required, among 

other things, CFO Act agencies’ systems to comply substantially with federal 

accounting standards and federal financial management systems requirements. 

MCA involves the accumulation and analysis of financial and nonfinancial data, 

resulting in the allocation of costs to organizational pursuits such as performance 

goals, programs, activities, and outputs. The data analyzed depend on the operations 

and needs of the organization. Nonfinancial data measure the occurrences of 

activities and can include, for example, the number of hours worked, units produced, 

 

1

 Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990). 

2

 In 2005, JFMIP’s responsibilities for financial management and policy oversight were realigned to the 

Office of Management and Budget, the Office of Personnel Management, and the Chief Financial 

Officer’s Council. 

3

 Pub. L. 104-208, div. A., § 101(f), title VIII, 110 Stat. 3009, 3009-389 (Sept. 30, 1996). 
Page 2 GAO-06-301R Managerial Cost Accounting Practices 

grants managed, inspections conducted, people trained, or time needed to perform 

certain functions. 

In light of the requirements for federal agencies to prepare MCA information, you 

asked us to determine the extent to which federal agencies develop cost information 

and use it for managerial decision making. The objectives of our review were to 

determine how federal agencies generate managerial cost accounting information as 

well as how governmental managers use cost information to support managerial 

decision making and provide accountability. 

This report summarizes information provided during our November 8, 2005, briefing 

to your staff concerning our review of MCA practices at the Department of Education 

(Education), the Department of Transportation (Transportation), and the Department 

of the Treasury (Treasury). This was our second in a series of briefings concerning 

the status of MCA activities at large government agencies. Our first briefing covered 

the status of MCA activities at the Department of Veterans Affairs and the 

Department of Labor.4

 The November 8, 2005, slides are presented in enclosure I. 

Status of Departmental Efforts to Implement Managerial Cost Accounting 

Similar to issues that surfaced in our earlier assessment at the Department of 

Veterans Affairs and the Department of Labor, we found uneven progress in MCA 

implementation and a need for enhanced controls over MCA data at Education, 

Transportation, and Treasury. 

Department of Education

At Education, 1 of 10 program offices had an MCA system in place at the time of our 

review. Education did not take a department-level leadership role to promote and 

monitor MCA implementation, nor did it have policies and procedures for 

implementing MCA departmentwide. Rather, according to Education officials, other 

priorities, such as improving controls over financial reporting, were taking 

precedence. 

Federal Student Aid (FSA), the one Education program office with an operational 

MCA system, independently developed its MCA system after being statutorily 

designated as a performance-based organization in 1998. FSA managers, however, 

still did not have direct access to the system and had to rely on a team of cost 

accounting personnel to provide system outputs. In addition, FSA had not completed 

development of a training strategy for current and potential users of the data. Also, 

FSA had not documented the design of controls or completion of those control 

procedures when performed to help ensure the reliability of nonfinancial data. 

Adequately designed controls and properly implemented procedures are key when 

determining the cost of work outputs. Further, FSA had not performed and 

documented a comprehensive post-implementation review of its MCA system which 

 

4

 GAO, Managerial Cost Accounting Practices: Leadership and Internal Controls Are Key to 

Successful Implementation, GAO-05-1013R (Washington, D.C.: Sept. 2, 2005). 
Page 3 GAO-06-301R Managerial Cost Accounting Practices 

would have determined how well the system met expectations and cost estimates, 

and would have documented lessons learned for current and future stakeholders. 

Department of Transportation

Transportation has in recent years shown strong leadership in developing MCA 

systems both departmentwide and at the individual operating administrations (OA). 

For example, two staff members from the Office of the Secretary provided daily 

support to the OAs in the area of MCA and monitored their progress in implementing 

MCA. In addition, MCA was discussed at CFO Group meetings, and at meetings of 

the Cost Accounting Steering Group. 

According to Transportation officials, the 12 OAs were developing MCA systems, 

tailored to their respective needs, which should be able to interface with Delphi — 

the department’s integrated financial management system, a component of which 

could be used by OAs for cost accounting. One of the two largest OAs, the Federal 

Aviation Administration (FAA), was mandated to develop a cost accounting system in 

1996, and had implemented MCA in two business lines covering over 80 percent of its 

budget. The other 11 OAs expected to have their MCA models in place by early fiscal 

year 2006. 

While Transportation supported and monitored implementation of MCA, and had 

issued related procedures in 2002, it did not have a written departmentwide MCA 

policy. At FAA, officials cited several controls to help ensure the reliability of 

nonfinancial data, and stated that system improvements for assigning labor costs 

related to the maintenance of older National Airspace System equipment were 

planned.

Department of the Treasury

By policy, Treasury delegated to its bureaus responsibility to implement MCA 

systems and processes to meet federal standards. Treasury retained oversight 

responsibility to ensure consistent implementation of MCA departmentwide. 

Treasury officials, however, had no specific procedures in place to ensure that 

consistent, periodic department-level oversight was conducted, and they promoted 

MCA and monitored MCA implementation on an informal and sporadic basis. This 

contributed to widely disparate implementation and use of MCA among Treasury’s 

operating bureaus and department-level offices. For example, the Bureau of 

Engraving and Printing and the Financial Management Service (FMS) had established 

MCA systems and practices, and management utilized cost information to make key 

decisions. However, at Treasury’s largest component, the Internal Revenue Service 

(IRS), MCA capability was limited. IRS’s newly implemented MCA module had less 

than 1 full year of data, and could only account for costs by activity, output, or 

program when those activities, outputs, or programs were completely housed within 

a single cost center. 

Controls to ensure the reliability of MCA data needed improvement in two of the 

three Treasury bureaus we reviewed. Specifically, at FMS and IRS, formal MCA 

policies and procedures had not been finalized, approved, or disseminated. Further, 
Page 4 GAO-06-301R Managerial Cost Accounting Practices 

improved department-level oversight of bureaus is needed to ensure appropriate 

systems that provide reliable information are implemented departmentwide. 

Recommendations for Executive Action 

We are making 17 recommendations to the Secretaries of the Departments of 

Education, Transportation, and the Treasury. 

Recommendations to the Secretary of Education

To help ensure that Education components implement and use reliable managerial 

cost accounting methodologies, we recommend that the Secretary of Education 

direct the Chief Financial Officer of the Department of Education to develop and 

issue

• a policy for implementing MCA departmentwide and 

• procedures for monitoring implementation of its departmentwide managerial 

cost accounting policy and for establishing a sound system of controls. 

To help ensure cost data reliability, more efficient utilization of the agency’s cost 

accounting system, and adequate staff knowledge of that system, we also recommend 

that the Secretary of Education direct the Chief Operating Officer of Federal Student 

Aid to 

• document the design of controls that are being used to help ensure the 

reliability of the nonfinancial data, 

• document the proper completion of these control procedures, 

• provide all appropriate staff direct access to cost accounting system output 

information, and 

• develop adequate training plans for all staff who could effectively utilize 

managerial cost accounting information. 

We also recommend that the Secretary of Education direct the Chief Operating 

Officer of Federal Student Aid to perform and document a post-implementation 

review to evaluate whether managerial cost information meets organizational 

objectives and users’ needs. This review should also determine the extent to which 

managers use or plan to use cost data in managing day-to-day operations. 

Recommendations to the Secretary of Transportation

To help ensure that Transportation components implement reliable cost accounting 

methodologies for use in managerial decision making in accordance with 

departmental objectives, we recommend that the Secretary of Transportation direct 

appropriate department officials to finalize and issue 

• a policy for implementing MCA departmentwide, and 

• formal procedures, revised as necessary, to monitor implementation of that 

policy and establish a sound system of controls. 
Page 5 GAO-06-301R Managerial Cost Accounting Practices 

In order for FAA to develop cost accounting information that is sufficiently reliable 

for ongoing managerial decision making, consistent with FAA-identified concerns and 

ongoing efforts, we also recommend that the Secretary of Transportation direct the 

Administrator of FAA to 

• implement the planned system improvement for assigning labor costs to 

National Airspace System maintenance projects, with appropriate internal 

controls to help ensure data reliability, and 

• implement managerial cost accounting in its two lines of business that have 

not completed implementation. 

Recommendations to the Secretary of the Treasury

To help ensure that Treasury components implement and use reliable managerial cost 

accounting methodologies, we recommend that the Secretary of the Treasury direct 

the Chief Financial Officer of the Department of the Treasury to develop and 

implement written procedures, including a sound system of controls, to better carry 

out Treasury’s policy to oversee the implementation and continued use of appropriate 

cost accounting methodologies at its bureaus and departmental offices. 

To help ensure that the Internal Revenue Service implements and uses reliable cost 

accounting methodologies in accordance with management objectives, we 

recommend that the Secretary of Treasury require the Commissioner of Internal 

Revenue to direct the Chief Financial Officer of IRS to finalize and issue 

• an Internal Revenue Service policy to carry out Treasury’s managerial cost 

accounting policy and 

• formal procedures, including a sound system of controls to implement that 

policy. 

We also recommend that the Secretary require the Commissioner of Internal Revenue 

to direct the Chief Financial Officer of IRS to finalize development and 

implementation of a cost accounting system capable of determining the cost of 

activities, services, or products at levels of detail suitable to assist managerial 

decision making. 

Similarly, we recommend that the Secretary require the Commissioner of Financial 

Management Service to direct the Chief Financial Officer of the Financial 

Management Service to finalize and issue 

• a Financial Management Service policy to carry out Treasury’s managerial cost 

accounting policy and 

• formal procedures, including a sound system of controls, to implement that 

policy. 
Page 6 GAO-06-301R Managerial Cost Accounting Practices 

Agency Comments and Our Evaluation 

We requested comments on a draft of our briefing presentation from the Secretaries 

of Education, Transportation, and the Treasury or their designees. We received 

written comments from the Chief Financial Officer of the Department of Education 

and from the Acting Deputy Chief Financial Officer of the Department of the 

Treasury. Transportation elected not to provide written comments, but did provide 

technical comments. We incorporated the agencies’ comments, as appropriate. 

Education and Treasury comments are reprinted as enclosures II and III, respectively. 

Comments from the Department of Education

Education agreed with six of our seven recommendations. In particular, it agreed 

with our four recommendations pertaining to data reliability and MCA utilization and 

said it would address these issues when implementing a new MCA system. Further, 

Education agreed with our two recommendations pertaining to departmentwide MCA 

policies and procedures for implementing that MCA policy, but said other priorities, 

such as improving controls over financial reporting, currently take precedence. 

Regarding our seventh recommendation concerning the need to perform and 

document a post-implementation review for the managerial cost information system, 

Education stated that it conducted a post-implementation review of its activity-based 

costing system on an ongoing basis, but that the results of the review were not 

documented. While the review process used by Education has benefits, a 

comprehensive post-implementation review undertaken and documented in 

accordance with Office of Management and Budget (OMB) Circular A-130, 

Management of Federal Information Resources, would provide a broader range of 

information about FSA’s system and how it is achieving its organizational objectives. 

This information could benefit current and future stakeholders. Accordingly, we 

made no change to our recommendation. 

Comments from the Department of Transportation

Transportation provided comments concerning MCA implementation at FAA and 

several other technical issues in two e-mails, but neither agreed nor disagreed with 

our four recommendations. We considered its technical comments and incorporated 

them, as appropriate. 

Comments from the Department of the Treasury

Treasury agreed with our six recommendations and stated that it recognizes the 

importance of addressing its cost accounting needs. However, Treasury stated that 

resource constraints limit the department’s ability to oversee MCA activities and that 

the cost of MCA should be weighed against its benefits and other competing 

priorities. We agree that the costs and benefits of an activity are important 

considerations but believe that MCA, conceptually, is what is needed to help promote 

efficiency, productivity, and the best use of limited resources. In our view, properly 

functioning MCA capabilities, as envisioned in laws and regulations, could help 

Treasury meet its mission needs in an era of constrained resources. 
Page 7 GAO-06-301R Managerial Cost Accounting Practices 

 

Treasury also made several comments regarding specific information in the report. 

Treasury commented that information we presented about current MCA efforts at IRS 

and the status of its MCA system were not accurate. It said that the IRS system 

allocates costs to over 13,000 IRS-defined cost centers. While IRS may have costcenter-level accounting, we remain concerned that according to IRS officials, IRS can 

only account for costs by activity, output, or program when those activities, outputs, 

or programs reside completely within a single cost center, thus not allowing IRS an 

enterprise-wide perspective on costs. 

Treasury also said that once sufficient data are collected, the current system along 

with information from other systems, such as performance data, will be used to 

obtain cost data in greater detail to support decision making. However, during our 

review, IRS officials told us that such analysis was not possible with the current 

system without implementing certain system upgrades. We believe that this 

perceived difference in position between Treasury and IRS officials about the 

capabilities of the current IRS system and the agency’s MCA requirements needs to 

be resolved. In any event, we continue to believe that the ability to generate more 

detailed cost information could be enhanced if an upgraded and integrated cost 

module or similar system was in place. Accordingly, we did not modify our position 

on this topic. 

In addition, Treasury said that the disparate implementation of MCA across the 

department is not solely the result of informal and sporadic departmental oversight. 

We clarified our briefing to instead acknowledge that the informal and sporadic 

oversight was a contributing factor to disparate MCA implementation, and also noted 

that the sophistication, extent, and cost of implementing MCA would depend on the 

operations and needs of the organization. 

Scope and Methodology 

Our methodology was consistent with the one employed in our prior review of MCA 

practices at the Department of Labor and the Department of Veterans Affairs.5

 To 

obtain an understanding of how MCA systems at Education, Transportation, and 

Treasury generate cost information, we interviewed officials and reviewed 

documentation on the status of MCA system implementation and the related 

obstacles to managerial costing. We also examined departmental guidance and 

looked for evidence of leadership and commitment to the implementation of entitywide cost management practices. Using the Standards for Internal Control in the 

Federal Government6

as a guide, we identified internal controls over the reliability of 

financial and nonfinancial information used in MCA. To determine how managers 

use cost information to support managerial decision making and provide 

accountability, we obtained an understanding of how Education, Transportation, and 

Treasury use cost accounting data for budgeting, costing services or products, 

5

 GAO-05-1013R, 12. 

6

 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 
Page 8 GAO-06-301R Managerial Cost Accounting Practices 

preparation of the Statement of Net Cost, and other managerial uses through 

interviews of agency officials and a review of documentation provided by the 

departments. 

During our review, we visited Education, Transportation, and Treasury headquarters 

in Washington, D.C. We interviewed managers and senior-level officials about their 

MCA activities at the departmental level and at selected component agencies. When 

possible, we corroborated information obtained in interviews with agency documents 

such as policies, procedures, system descriptions, and flowcharts. We also reviewed 

prior office of inspector general and GAO reports regarding MCA activities, systems, 

and data. The agencies provided comments on a draft of this report, which we 

considered and incorporated as appropriate. We performed this work in accordance 

with U.S. generally accepted government auditing standards from May 2005 through 

October 2005. 

We are sending this report to the Secretaries of Education, Transportation, and the 

Treasury; the Director of OMB; and other interested parties. Should you or your staff 

have any questions on the matters discussed in this correspondence, please contact 

me at (202) 512-6131 or martinr@gao.gov. Contact points for our Offices of

Congressional Relations and Public Affairs can be found on the last page of this 

report. GAO staff who made major contributions to this report are listed in enclosure 

IV. 

Sincerely yours, 

Robert E. Martin 

Director, Financial Management and Assurance 
Enclosure I 

November 8, 2005 Briefing 

1

Managerial Cost Accounting Practices

Departments of Education, Transportation, and the Treasury

Briefing to the Subcommittee on Government Management, Finance, and 

Accountability, Committee on Government Reform, House of

Representatives

November 8, 2005

2

Table of Contents

• Introduction and Objectives

• Scope and Methodology

• Results in Brief

• Background

• Department of Education

• Department of Transportation

• Department of the Treasury

• Conclusions

• Recommendations for Executive Action

• Agency Comments and Our Evaluation

Page 9 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

3

Introduction and Objectives 

• Authoritative bodies have promulgated laws, accounting 

standards, system requirements, and related guidance to 

emphasize the need for cost information and cost 

management in the federal government: 

• Congress 

• Federal Accounting Standards Advisory Board (FASAB) 

• Joint Financial Management Improvement Program 

(JFMIP)

• Office of Management and Budget (OMB)

• In light of these requirements, you asked us to determine 

the extent to which federal agencies develop cost 

information and use it for managerial decision making.

4

Introduction and Objectives

• The objectives of our review were to determine how

• federal agencies generate managerial cost accounting 

(MCA) information and

• government managers use cost information to support 

managerial decision making and provide accountability. 

• This is the second in a series of briefings concerning the 

status of MCA activities at large government agencies. 

• This briefing summarizes our observations at the 

Department of Education (Education), Department of 

Transportation (Transportation), and the Department of the 

Treasury (Treasury).

Page 10 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

5

Scope and Methodology

• To determine how MCA systems at Education, 

Transportation, and Treasury generated cost information, 

we interviewed officials and obtained documentation at 

headquarters offices and selected component agencies 

(e.g., bureaus and offices) on

• the status of MCA system implementation; 

• departmental guidance, leadership, and commitment to 

the implementation of cost management practices 

entitywide; 

• departmental internal controls to help ensure the 

reliability of financial and nonfinancial information used

in MCA; and 

• obstacles to managerial costing.

6

Scope and Methodology

• To determine how Education, Transportation, and Treasury 

managers used cost information to support managerial 

decision making and provide accountability, we interviewed 

officials at the department level and at several component 

agencies on the use of cost accounting data for 

• budgeting; costing activities, services or products; 

monitoring operations; and enhancing performance 

measures and operational efficiency;

• preparing the Statement of Net Cost; and 

• any other uses. 

Page 11 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

7

Scope and Methodology

• We visited Education, Transportation, and Treasury 

headquarters in Washington, D.C., and interviewed officials 

about their MCA activities at the department level and at 

selected component agencies.

• When possible, we corroborated information obtained in 

interviews with agency documents such as policies, 

procedures, system descriptions, and flowcharts. We also 

reviewed prior Office of Inspector General (OIG) and GAO 

reports regarding MCA activities, systems, and data. 

• We performed this work from June through September 2005 

in accordance with U.S. generally accepted government 

auditing standards.

8

Results in Brief

• Education management did not take a leadership role to promote 

the benefits of cost accounting policies or systems 

departmentwide, and presently has a cost accounting system in 

only one of 10 program offices — Federal Student Aid (FSA). 

FSA independently developed its system after being statutorily 

designated as a Performance Based Organization. One drawback 

of its system is that FSA managers do not have access to the

system and must depend on system operators for information.

• At Transportation, individual operating administrations (OA) are

building MCA models tailored to their respective needs based on 

Delphi, a departmentwide integrated financial management 

system that includes a module that can be used for MCA. At the 

time of our review, FAA, one of Transportation’s two largest OAs, 

had substantially implemented a MCA system linked to Delphi in 

two of its four lines of business covering over 80 percent of FAA’s 

budget. Transportation management expects all 12 of its OAs to 

have implementation of their MCA systems underway in fiscal 

year 2006.

Page 12 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

9

Results in Brief

• Treasury assigned responsibility for MCA implementation 

to its nine operating bureaus. In the absence of effective 

department-level leadership, the extent of MCA 

implementation varied among the bureaus. Five bureaus, 

including the Internal Revenue Service (IRS), Treasury’s 

largest bureau, did not have well-established MCA 

systems.

• Education, Transportation, and Treasury officials cited 

some existing and several planned uses of MCA 

information by component agencies and certain 

department-level offices for budgeting, resource allocation, 

financial reporting, and other managerial decision-making 

purposes.

10

Results in Brief

• MCA-related internal controls needed strengthening.

• Education and Transportation lacked formal written policies 

about MCA and Education lacked procedures about 

implementing MCA department-wide. Certain component 

agencies at Treasury also lacked formal written policies

and procedures about MCA.

• To address our findings, we made recommendations to 

each of the three agencies: seven to Education, four to 

Transportation, and six to Treasury. We received written 

comments from Education and Treasury and technical 

comments from Transportation. We considered and 

incorporated the comments, as appropriate.

Page 13 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

11

Background

• The Chief Financial Officers (CFO) Act of 1990, Statement of 

Federal Financial Accounting Standards (SFFAS) No. 4: 

Managerial Cost Accounting Concepts and Standards for the 

Federal Government, and JFMIP's Framework for Federal 

Financial Management Systems establish requirements and 

accounting standards for MCA information at federal 

agencies.1

• The Federal Financial Management Improvement Act of 

1996 (FFMIA) builds on the foundation provided by the CFO 

Act and includes requirements for CFO Act agencies’ 

systems to comply substantially with, among other things, 

federal financial management systems requirements and 

federal accounting standards.

1

In 2005, JFMIP’s responsibilities for financial management and oversight were realigned to 

OMB, OPM, and the Chief Financial Officers Council.

12

Background

• MCA involves the accumulation and analysis of financial 

and nonfinancial data to determine the cost of achieving 

performance goals, delivering programs, and pursuing other 

activities. The data analyzed, as well as the sophistication, 

extent, and, therefore, the cost of implementing and 

maintaining MCA systems and activities, depend on the 

operations and needs of the organization. 

• Nonfinancial data measure the occurrence of outcomes, 

outputs, and activities to which costs are assigned. 

• Nonfinancial data could include the number of electronic 

payments, reductions in staffing levels, the number of hours 

worked, units produced, grants managed, inspections 

conducted, people trained, or time needed to perform

certain functions.

Page 14 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

13

Department of Education

Background

• Education was established to promote (1) equal educational 

opportunity for every individual and (2) improvements in the 

quality and usefulness of education.

• Education has 10 program offices and 12 management and 

staff offices.

• In fiscal year 2005, Education had approximately 4,500 

employees and a budget of about $68 billion.

• According to Education officials, about 98 percent of the 

agency budget goes to grants, guaranteed loans, and direct 

loans. They said that about 93 percent of all Education

loans and grants were disbursed by FSA, the Office of 

Elementary and Secondary Education (OESE), and the 

Office of Special Education and Rehabilitative Services 

(OSERS). FSA alone accounted for 47 percent.

14

Department of Education

MCA Systems in Place

• Education had not issued MCA policies and only one 

component had a MCA system. 

• Department officials have not considered cost 

accounting a key issue because most of the 

appropriations were disbursed as grants and loans. Administrative costs made up only about 2 percent, or $1.3 billion, of Education’s appropriations. Further, according to Department officials, 61 percent of the $1.3 

billion were administrative costs attributable to FSA and 

were already subject to MCA methodologies. 

• Education used allocation methodologies to assign costs 

to its programs on the Statement of Net Costs for 

department-level external reporting, but, except for one 

component, did not assign costs to activities, services, 

and products to assist managerial decision making.

Page 15 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

15

Department of Education

MCA Systems in Place

• FSA was the only component with a cost accounting 

system. Neither Education officials nor officials at the other 

two largest components we contacted had plans to 

implement cost accounting systems.

• FSA began development of an activity based cost (ABC) 

system in 1999 in response to a 1998 statutory requirement 

that designated it a performance-based organization and 

required it to reduce administrative costs.

• FSA’s Chief Operating Officer (COO) fully supported and 

promoted the development of the system. 

• FSA’s COO emphasized to us that she is committed to 

the goal of reducing administrative costs and to using 

ABC, stating, “Everything we do is about costs.”

16

Department of Education

MCA Systems in Place

• The FSA system used commercial off-the-shelf (COTS)

software.

• GAO reviewed early models of FSA’s system in 2002 

and expressed concerns about the system, which 

included using budget obligations in lieu of actual costs 

and not using full costs.2 We reported in October 2004 

that newer models were developed and, although not 

operational at the time, they had the potential to identify 

full costs.3

• According to FSA, the current MCA assigns full costs —

both direct and indirect costs, including non-FSA 

overhead — to business processes.

2 GAO, Federal Student Aid: Additional Management Improvements Would Clarify Strategic Direction 

and Enhance Accountability, GAO-02-255 (Washington, D.C.: Apr. 30, 2002).

3 GAO, Better Strategic and Human Capital Planning, GAO-05-31 (Washington, D.C.: Oct. 6, 2004).

Page 16 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

17

Department of Education

MCA Systems in Place

• FSA told us the system became fully operational in early 

2005. 

• Managers did not have direct access to FSA’s MCA system 

but had to rely on a team of cost accounting personnel who 

could provide system outputs. This could limit managers’ 

ability to use cost information as needed.

• FSA officials told us that they are in the process of

• acquiring new software to provide end-user-friendly 

reporting using web-based capabilities, and

• developing a training strategy to provide more training to 

all current and potential users of the data.

18

Department of Education

MCA Systems in Place

• Obstacles encountered during implementation at FSA 

included:

• many managers focusing on budget execution, as 

opposed to the full cost of outputs;

• managers not understanding how to use MCA data in 

their day-to-day operations; and

• software limitations in data presentation and reporting 

capabilities.

• FSA incorporated financial information from the 

department’s general ledger, and nonfinancial information, 

such as workloads, from other sources.

Page 17 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

19

Department of Education

MCA Systems in Place

• Various controls over financial data were in place:

• FSA’s MCA system was documented in writing.

• FSA’s separate financial statements were subject to 

independent audit and received unqualified audit 

opinions for fiscal years 2002 through 2004.

• Financial data for the MCA system was pulled from the

department’s general ledger system and reconciled to 

the Statement of Net Costs.

20

Department of Education

MCA Systems in Place 

• For nonfinancial data, FSA relied mainly on controls within 

the offices that are the sources of the data.

• FSA’s Enterprise Performance Management Services 

team reviewed the nonfinancial performance data 

periodically for anomalies by comparing data to standard 

system reports. 

• FSA’s cost accounting team performed trend analysis and 

compared data for consistency; however, it had not 

documented the design of controls that are being used to 

help ensure the reliability of the nonfinancial data, nor had it 

documented that control procedures were properly 

completed.

Page 18 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

21

Department of Education

MCA Systems in Place

• FSA has identified requirements for its system, but it had not 

performed and documented a more comprehensive postimplementation review of its ABC system to determine if the 

system adequately meets its needs. Such a review would:

• evaluate the extent to which the project results met 

expectations,

• evaluate the differences between estimated and actual 

costs, and

• provide opportunities for management to extract “lessons 

learned” and improve control processes.

22

Department of Education

Use of MCA Information

• According to FSA officials, they used data from the system 

to

• assist in preparation of its fiscal year 2007 budget 

request,

• identify targets for business process improvements 

including analyzing the costs and benefits of specific 

investments, and

• develop cost reductions for the FSA Five-Year 

Performance Plan.

Page 19 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

23

Department of Education

Use of MCA Information

• Unlike FSA, the other two components (OESE and OSERS) 

we contacted did not analyze their grant processing costs.

• To provide an indication of its output costs, Education used 

full time equivalent employees (FTE) and average labor 

costs to compute and report average costs of $6,100 per 

grant in its 2004 performance and accountability report 

(PAR) for components other than FSA.

• However, because of MCA system limitations, 

component officials told us they did not know if reported 

departmentwide average costs were representative of 

actual processing costs for their components.

24

Department of Transportation

Background 

• Transportation’s mission is to serve the United States by 

ensuring a safe transportation system that furthers our vital 

National interests and enhances the quality of life of the 

American people.

• For fiscal year 2005, Transportation had a budget of

approximately $58 billion and employed approximately 

59,000 people.

• Transportation consists of 12 operating administrations 

(OA). Two of these operating administrations, Federal 

Aviation Administration (FAA) and Federal Highway 

Administration (FHWA) make up about 80 percent of

Transportation’s budget.

Page 20 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

25

Department of Transportation

MCA Systems in Place

• In November 2003, Transportation implemented a new 

integrated financial management system called Delphi, a 

component of which may be used by OAs for cost 

accounting. Delphi uses COTS financial management 

system software.

• Each of the 12 OAs were developing their own MCA system 

tailored to their respective needs. FAA’s MCA system was 

implemented in two of its four lines of business covering 

over 80 percent of its budget and was already linked to 

Delphi. Management at FHWA and the other 10 OAs 

expect to have MCA models in place by early fiscal year 

2006.

26

Department of Transportation

MCA Systems in Place

• Transportation provided strong support for MCA from the 

Department Secretary. Examples of support include:

• Two staff members from the Office of the Secretary 

provided daily support to the OAs in the area of MCA, 

and monitored their progress.

• The Office of the Secretary emphasized the importance 

of MCA in several memorandums to the OAs, and 

outlined steps the OAs should follow to implement MCA.

• MCA was discussed at monthly CFO Group meetings as

well as at meetings of the Cost Accounting Steering 

Group.

Page 21 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

27

Department of Transportation

MCA Systems in Place

• While Transportation supported and monitored the 

implementation of MCA, it did not have a written 

departmentwide MCA policy. Procedures for implementing

MCA departmentwide were issued in 2002. 

• Individual OAs also provided support for MCA:

• According to FAA officials, FAA’s Strategic Plan contains

a directive for every organization in FAA to develop 

productivity metrics such as unit costs.

• FHWA contracted with Grant Thornton Consultants to 

implement MCA methodologies for its three programs by 

February 2006.

28

Department of Transportation

MCA Systems in Place

• FAA was mandated to develop a cost accounting system in 

1996. Since then, FAA has worked to implement its MCA 

system which is referred to as CAS for “Cost Accounting 

System.”

• CAS provides managers with fully allocated costs of FAA 

products and services. CAS takes direct cost data from 

Delphi and allocates direct, indirect, and overhead costs to 

benefiting organizations, products, or services.

Page 22 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

29

Department of Transportation

MCA Systems in Place

• FAA and Transportation officials stated that CAS is 

implemented in the Air Traffic Organization (ATO) and 

Commercial Space Transportation, two of FAA’s four lines 

of business which cover over 80 percent of its budget. 

• These two lines of business implemented CAS using 

PeopleSoft software. The remaining lines of business —

Aviation Safety and Airports — are expected to implement 

CAS using Oracle Projects software. 

• According to FAA officials, costs roll up to Transportation 

performance goals.

30

Department of Transportation

MCA Systems in Place

• FHWA started implementing MCA in October 2003.

• FHWA’s costs are generated by three types of programs: 

General Operating Expenses/Research and Development, 

Federal Lands, and Federal Aid to States. According to 

FHWA officials, each program is expected to have its own 

MCA system by February 2006.

• According to FHWA officials, their MCA system will allocate 

indirect costs and overhead, and will produce cost reports 

with overhead (i.e., full cost) and without overhead.

• Management expects MCA systems for all 3 programs to 

roll up costs to Transportation performance goals.

Page 23 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

31

Department of Transportation

MCA Systems in Place

• Transportation officials said that financial data was subject 

to classic accounting controls such as 

• financial audits by independent auditors,

• monthly reconciliations between the general ledger and 

Delphi modules, and

• weekly exception reports such as invoices on hold, and 

errors with data.

• However, in its report on internal controls related to 

Transportation’s fiscal year 2004 financial statements, the 

OIG stated that extraordinary efforts were needed to 

produce audited financial statements for that year. 

32

Department of Transportation

MCA Systems in Place

• Because of continuing material deficiencies in internal 

control over financial management and reporting activities, 

FHWA in particular continued to encounter significant 

problems generating reliable financial information. Over 

$18 billion of adjustments to the financial statements were 

needed to correct errors and omissions in FHWA’s

accounting records at the end of fiscal year 2004.

• Material weaknesses in internal control may adversely affect 

any decision by FHWA management that is based, in whole 

or in part, on information that is inaccurate because of these 

weaknesses. According to FHWA officials, they were

working on a solution to this issue and it should be fixed in 

fiscal year 2006, by the time it implements MCA.

Page 24 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

33

Department of Transportation

MCA Systems in Place

• FAA officials cited several internal controls over nonfinancial data 

such as intensive oversight by the OIG, which is statutorily required to report annually on CAS implementation.

• Nonfinancial data, specifically labor data, was subject to controls such as

• supervisory review of time and attendance coding, and

• front-end edit checks of data for validity.

• FAA officials noted the need to revise labor cost data related to 

maintenance of older National Airspace System equipment 

because it may be unreliable. They expect the next version of 

FAA’s CAS, scheduled for release in January 2006, to correct this 

problem.

• FAA officials said they recently created a new Internal Controls

Division, within the FAA CFO’s office. A key responsibility of the 

division will be to test the internal controls over both financial and 

nonfinancial systems.

34

Department of Transportation

Use of MCA Information

• In their fiscal year 2004 PAR, Transportation officials noted that 

they used cost information in a variety of ways. For example, they

• linked costs to strategic performance areas, and used

highway and air traffic safety data to link performance to 

financial information; and

• used cost finding techniques in the fiscal year 2006 budget 

cycle to estimate marginal cost of performance (what results 

can be achieved at different levels of funding) for selected 

programs.

• Transportation officials also said they studied the costs of

replacing retiring employees, and whether they needed to be 

replaced at the same grade level.

• According to Transportation officials, they were in the process of 

streamlining selected processes so that the Statement of Net 

Cost can be produced directly out of the core financial system.

Page 25 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

35

Department of Transportation

Use of MCA Information

• According to FAA officials, significant benefits have already 

been obtained from CAS. For example, FAA officials told us 

they used CAS data to 

• contract out ATO Flight Service Stations in 2003, saving 

about $2.2 billion over 10 years (these savings included 

reductions in operating, facilities, and equipment costs 

as well as a reduction of 400 staff),

• cancel a $27 million medium airport weather program, 

and

• modify an airport radar surveillance program, avoiding a 

cost of $7 million.

36

Department of Transportation

Use of MCA Information

• According to FHWA officials, its MCA system, once 

implemented, will be able to generate data and reports on 

cost by strategic goal, office, activity, and performance 

objective.

• FHWA planned to use these reports for, among other things,

• benchmarking against like organizations,

• resource allocation,

• budgeting, and

• performance measurement.

Page 26 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

37

Department of the Treasury

Background

• Treasury’s mission is to promote the conditions for 

prosperity and stability in the United States and encourage 

prosperity and stability in the rest of the world.

• In fiscal year 2005, Treasury had an annual operating 

budget of approximately $18 billion and employed 

approximately 113,000 people, of which nearly 100,000

worked at IRS.

• Treasury consists of 9 operating bureaus and 5 

departmental offices.

38

Department of the Treasury

MCA Systems in Place

• Treasury policy delegated to its bureaus the responsibility to 

implement MCA systems and processes to be aligned with the 

particular operating environment of each entity, requiring each to 

individually meet or exceed the objectives and standards of 

SFFAS No. 4, Managerial Cost Accounting Concepts and 

Standards for the Federal Government.

• Treasury retained oversight responsibilities to ensure

consistent implementation in accordance with the standards.

• The policy stated that the department will oversee and contribute 

to the improvement of MCA at the bureau level by addressing 

consistency, when appropriate, sharing best practices, and 

facilitating improvements to bureau systems. However, according 

to department officials, they executed these oversight 

responsibilities on an informal, sporadic basis. Further, there

were no specific procedures in place to ensure that consistent, 

periodic oversight was conducted.

Page 27 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

39

Department of the Treasury

MCA Systems in Place

• Additionally, in the 2004 PAR, the OIG stated that the 

department had not incorporated MCA into all of its 

business activities, which undermined the accuracy and 

usefulness of program performance reporting.

• At the time of our review, Treasury was currently developing 

a strategic performance management framework, a 

component of which is MCA, that is intended to provide 

management with reporting tools integrating cost, financial, 

and performance data.

40

Department of the Treasury

MCA Systems in Place

• Treasury bureaus include manufacturing and monetary-item 

processing entities with operating MCA systems.

• The Bureau of Engraving and Printing (BEP) used COTS 

software to accumulate and assign full costs to products, 

organizational units, and specific operations.

• Various controls over financial and nonfinancial data 

were in place including annual financial statement 

audits that resulted in unqualified opinions; periodic 

reviews of labor, material, and overhead costs; and 

risk-based inventory cycle counts of production units

such as ink and paper to measure utilization and 

shrinkage.

Page 28 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

41

Department of the Treasury

MCA Systems in Place

• Treasury’s Financial Management Service (FMS) uses COTS

software for MCA purposes, which integrates financial and 

nonfinancial data from payroll, travel, requisition, and property 

systems.

• Internal controls included data validation rules to help 

ensure transmitted data is accurate and falls within

predetermined ranges. Also, FMS officials said that they 

review data for reasonableness and research variances to 

ensure the accuracy of the data. Finally, certain FMS 

accounts were also subject to annual financial statement 

audits.

• However, formal MCA policies and procedures had not 

been finalized, approved, or disseminated to reflect new 

systems and processes. Formal MCA policies and

procedures would provide a reference resource for users 

of cost methodology and procedures employed by FMS.

42

Department of the Treasury

MCA Systems in Place

• Management asserted that Bureau of Public Debt and 

U.S. Mint also had fully functional and operating MCA 

systems. We did not review MCA activities at these 

component agencies.

• Management told us that other Treasury bureaus, which 

generally provide oversight, did not yet have fully 

implemented and operational MCA systems.

Page 29 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

43

Department of the Treasury

MCA Systems in Place

• At IRS, officials said they plan to utilize the cost module of the 

Integrated Financial System for MCA information and executive 

decision making in fiscal year 2007. 

• The cost module, implemented in November 2004, had less 

than a full year of cost data loaded at the time of our review. 

• IRS officials said the cost module enabled them to assign full 

costs to some cost centers. 

• However, this system linked costs to activities only at the cost

center level. It did not facilitate more detailed analysis by 

activity, output, or program unless costs pertained to a single 

cost center. 

• The system did not provide for nonfinancial data (e.g., 

hours worked) needed to calculate detailed cost analyses.

• Further, management had not yet assessed whether this 

newly implemented cost module would meet the agency’s 

managerial decision-making needs. 

44

Department of the Treasury

MCA Systems in Place

• IRS officials said that a MCA policy had been drafted, but it had 

not been finalized, approved, or disseminated.

• According to IRS officials, all future changes to its system had

been placed on hold because of a lack of funding. Data required 

to compute detailed costing such as number of hours worked and 

cases worked, will only become available when, and if, an

upgraded cost module or a similar system is put in place.

• Other bureaus, including Office of the Comptroller of the 

Currency, Financial Crime Enforcement Network, Alcohol and 

Tobacco Tax and Trade Bureau, and Office of Thrift Supervision, 

use various cost finding techniques and analyses, which 

management sometimes noted to be time consuming, and 

manual processes performed only upon special request.

Page 30 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

45

Department of the Treasury

MCA Systems in Place

• In our audit report on IRS financial statements for fiscal year 

2004,4 we stated that weaknesses in internal control over the 

financial reporting process resulted in IRS (1) not being able to 

prepare reliable financial statements without extensive 

compensating procedures and (2) not having current and reliable 

ongoing information to support management decision making and 

prepare cost-based performance measures.

• We reported that material weaknesses in internal control may 

adversely affect any decision by IRS management that is based, 

in whole or in part, on information that is inaccurate because of 

these weaknesses. Also, unaudited financial information reported 

by IRS, including performance information, may also contain 

misstatements resulting from these weaknesses.

4 GAO, Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial Statements, GAO-05-103 

(Washington, D.C.: Nov. 1, 2004).

46

Department of the Treasury 

Use of MCA Information

• Because BEP operates as a revolving fund, it should recover its 

full cost of operations. According to BEP officials, uses of MCA

information included the following:

• Analysis of cost and spoilage information to help implement a 

new automated inspection process. Officials said this 

implementation resulted in a substantial reduction in cost 

without jeopardizing quality.

• Cost and benefit analysis of a proposed robotics currency 

packaging system. BEP officials said that this potentially could

reduce two out of three FTEs performing related functions at 

each of their two manufacturing facilities.

• Review of key MCA performance indicators to identify 

decreasing efficiency in older manufacturing presses. In 

targeting these machines for overhaul, BEP management 

expects to achieve significant cost savings.

Page 31 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

47

Department of the Treasury 

Use of MCA Information

• FMS provides centralized electronic and paper payment, collection, and reporting services for the federal 

government. According to FMS officials, examples of MCA information usage included:

• formulating budgets, evaluating programs, and setting 

fees and prices for services provided to other 

government entities; and 

• analyzing and reporting unit costs for federal government 

payments and collections, so that FMS can provide 

services at a lower cost. 

48

Department of the Treasury 

Use of MCA Information

• At the time of our review, Treasury’s Office of Strategic 

Planning and Performance Management was currently 

developing a framework that is intended to integrate 

financial, cost, and performance data into a management 

decision-making tool. Its planned benefits include:

• evaluative reporting tools to manage Treasury corporate performance,

• unit cost and value measures for each of Treasury’s major activities,

• integration of performance into budget formulation, and

• assessment of Senior Executive Service (SES) performance.

Page 32 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

49

Conclusions

• Strong leadership in the departments will be required to 

implement MCA across government. This is true regardless 

of whether the department chooses a departmentwide 

system or delegates responsibility for system development 

to component agencies. In either case, the leadership will 

need to focus on promoting the benefits of MCA, monitoring 

its implementation, and establishing a sound system of 

controls to help ensure the reliability of the data used.

50

Conclusions

Department of Education

• The Department of Education neither promoted nor 

monitored MCA implementation at 9 of 10 program offices 

and at all 12 of its management and staff offices. Expanded 

use of MCA to additional offices would improve managerial 

decision making and the reliability of reported cost 

information departmentwide. At FSA, the one program office 

with an operational MCA system, stronger internal controls 

could help ensure the reliability of its MCA data. Additional 

staff training and easier access to MCA information would 

improve utilization of MCA information.

Page 33 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

51

Conclusions

Department of Transportation

• Transportation has shown strong leadership in developing 

MCA systems both departmentwide and at the individual 

OAs by promoting the benefits of MCA and actively 

monitoring its implementation at the Office of the Secretary 

level. Furthermore, Transportation put into practice controls 

over the data in its MCA systems through various audits, 

reconciliations, exception reports, supervisory reviews, and 

input controls. However, a departmentwide MCA policy for 

MCA implementation and oversight had not been 

completed. Also, stronger internal controls would help 

improve the reliability of MCA data.

52

Conclusions

Department of the Treasury

• Officials told us the department promoted MCA and 

monitored MCA implementation on an informal and sporadic 

basis. This contributed to widely disparate levels of

implementation and use of MCA among Treasury’s 

operating bureaus and department-level offices. At 

Treasury’s largest component, IRS, a MCA policy was not 

finalized and MCA capability was limited. Further, controls 

to ensure the reliability of MCA data needed improvement in 

two of the three bureaus we reviewed, including IRS.

Improved department-level oversight of bureaus would help 

ensure that appropriate systems that provide reliable

information are implemented departmentwide.

Page 34 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

53

Recommendations

for Executive Action

Recommendations to the Secretary of Education

• To help ensure that Education components implement and 

use reliable MCA methodologies, we recommend that the 

Secretary of Education direct appropriate department 

officials to develop and issue .

• a departmentwide MCA policy that focuses on the 

benefits of MCA, and

• procedures for monitoring implementation of its 

departmentwide MCA policy and for establishing a 

sound system of controls.

54

Recommendations

for Executive Action

• To help ensure MCA data reliability, more efficient utilization 

of FSA’s MCA system, and adequate staff knowledge in 

using FSA’s MCA system, we also recommend that the 

Secretary of Education direct appropriate FSA officials to

• document the design of controls that are being used to 

help ensure the reliability of the nonfinancial data,

• document the proper completion of these control 

procedures,

• provide all appropriate staff direct access to MCA system 

output information, and

• develop adequate training plans for all staff who could 

effectively utilize information from MCA.

Page 35 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

55

Recommendations

for Executive Action

• We also recommend that the Secretary of Education direct 

appropriate FSA personnel to perform and document a postimplementation review to evaluate whether managerial cost 

information meets organizational objectives and users’

needs. This review should also determine the extent to 

which managers use or plan to use cost data in managing

day-to-day operations.

56

Recommendations

for Executive Action

Recommendations to the Secretary of Transportation

• To help ensure that Transportation components implement 

reliable MCA methodologies for use in managerial decision 

making in accordance with departmental objectives, we 

recommend that the Secretary of Transportation direct 

appropriate department officials to finalize and issue

• departmentwide MCA policy that focuses on the benefits 

of MCA, and

• formal procedures, revised as necessary, to monitor 

implementation of that policy and establish a sound 

system of controls.

Page 36 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

57

Recommendations

for Executive Action

• In order for FAA to develop MCA information that is 

sufficiently reliable for ongoing managerial decision making, 

consistent with FAA-identified concerns and ongoing efforts, 

we also recommend that the Secretary of Transportation 

direct appropriate FAA officials to

• implement the planned system improvement for 

assigning labor costs to National Airspace System 

maintenance projects, with appropriate internal controls 

to help ensure data reliability, and

• implement MCA in its two remaining lines of business.

58

Recommendations

for Executive Action

Recommendations to the Secretary of the Treasury

• To help ensure that Treasury components implement and 

use reliable MCA methodologies, we recommend that the 

Secretary of the Treasury direct appropriate departmentlevel officials to

• develop and implement written procedures including a 

sound system of controls to better carry out Treasury’s 

policy to oversee the implementation and continued use 

of appropriate MCA methodologies at its bureaus and 

departmental offices.

Page 37 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

59

Recommendations

for Executive Action

• To help ensure that IRS implements and uses reliable MCA 

methodologies in accordance with management objectives, 

we recommend that the Secretary of Treasury direct 

appropriate IRS officials to finalize and issue:

• an IRS MCA policy to carry out Treasury’s MCA policy, 

and

• formal procedures including a sound system of controls 

to implement that policy.

• We also recommend that the Secretary direct appropriate 

IRS officials to finalize development and implementation of 

a MCA system capable of determining the cost of activities, 

services, or products at levels of detail suitable to assist 

managerial decision making. 

60

Recommendations

for Executive Action

• Similarly, we recommend that the Secretary direct 

appropriate FMS officials to finalize and issue

• an FMS MCA policy to carry out Treasury’s MCA policy, and

• formal procedures including a sound system of controls 

to implement that policy.

Page 38 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

61

Agency Comments

and Our Evaluation

• We received comment letters from Education and Treasury 

on a draft of this briefing and we assess their comments 

herein. Transportation elected not to send us a comment 

letter but did provide technical comments by email. We 

incorporated the agencies’ comments in this briefing, as 

appropriate.

62

Agency Comments

and Our Evaluation

• Education agreed with six of our seven recommendations 

and disagreed with one. Education agreed with our two 

recommendations pertaining to departmentwide MCA

policies and procedures for implementing that MCA policy 

but said other priorities such as improving controls over

financial reporting take precedence. Education also agreed 

with our four recommendations pertaining to data reliability 

and MCA utilization and said they would address these 

when they implement a new MCA system. 

Page 39 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

63

Agency Comments 

and Our Evaluation

• However, regarding our recommendation that they perform 

a formal post-implementation review for the managerial cost 

information system, Education stated that the review of their 

ABC system is an ongoing process. 

• Though the process used by Education has benefits, a 

comprehensive post-implementation review undertaken and 

documented in accordance with OMB Circular No. A-130, 

Management of Federal Information Resources, would 

provide additional information for management concerning 

how FSA’s MCA system is achieving its objectives. This 

information would benefit current and future stakeholders. 

Accordingly, we made no change to our recommendation.

64

Agency Comments 

and Our Evaluation

• Transportation provided technical comments on our draft in 

two emails but neither agreed nor disagreed with our 

recommendations. We considered their technical comments 

and incorporated them, as appropriate.

Page 40 GAO-06-301R Managerial Cost Accounting Practices 
Enclosure I 

65

Agency Comments

and Our Evaluation

• Treasury agreed with our recommendations and stated that it 

recognizes the importance of addressing its cost accounting needs. 

However, Treasury stated that resource constraints limit the

department’s ability to oversee MCA activities and that the cost of 

MCA should be weighed against its benefits and other competing 

priorities. We agree that the cost and benefits of an activity is an

important consideration but believe that MCA helps promote

efficiency, productivity, and the best use of limited resources and that 

properly functioning MCA capabilities could help Treasury in meeting 

its mission needs in an era of constrained resources. 

• Treasury also made several comments regarding specific information 

in the report. Treasury commented that information we presented 

about current MCA efforts at IRS and the status of its MCA system 

were not accurate. It said that the IRS system allocates costs to

over 13,000 IRS-defined cost centers. We agree and clarified our 

report, noting also that the current system generally did not facilitate 

analysis by activity, output, or program in greater detail than at the 

cost center level.

66

Agency Comments

and Our Evaluation

• Treasury also said that once sufficient data is collected, the current 

system along with information from other systems, such as

performance data, will be used to obtain cost data in greater detail to 

support decision-making. However, during our review, IRS officials 

told us that such analysis was not possible with the current system. 

We believe that this difference in position between Treasury and IRS 

officials about the capabilities of the current IRS system and the 

agency’s MCA requirements needs to be resolved. In any event, the 

ability to generate more detailed cost information could be enhanced 

if an upgraded and integrated cost module or similar system was in 

place. We did not modify our briefing for this comment.

• In addition, Treasury said that the disparate implementation of MCA 

across the department is not solely the result of informal and

sporadic departmental oversight. We clarified our briefing by stating 

that the informal and sporadic oversight was a contributing factor.

Page 41 GAO-06-301R Managerial Cost Accounting Practices 
Page 42 GAO-06-301R Managerial Cost Accounting Practices 

Enclosure II 

Comments from the Department of Education 
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Page 48 GAO-06-301R Managerial Cost Accounting Practices 

Enclosure III 

Comments from the Department of the Treasury 
Page 49 GAO-06-301R Managerial Cost Accounting Practices 
Page 50 GAO-06-301R Managerial Cost Accounting Practices 

Enclosure IV 

GAO Contact and Staff Acknowledgments

GAO Contact 

Robert E. Martin (202) 512-6131 or martinr@gao.gov 

Acknowledgments 

In addition to the contact named above, key contributors to this assignment were 

Jack Warner, Assistant Director; Paul Begnaud; Lisa Crye; Dan Egan; Fred Evans; 

Barry Grinnell; Barbara House; Jerrica Kahle; Paul Kinney; Lisa Knight; James Moses; 

Lori Ryza; Glenn Slocum; and Bill Wright. 

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